Corporate Governance Statement 2011

The Corporate Governance Statement issued pursuant to Section 289a of the German Commercial Code (Handelsgesetzbuch – HGB) includes the Declaration of Conformity in respect of the German Corporate Governance Code, relevant details with regard to corporate governance practices that go beyond the legal requirements and a description of the procedural methods adopted by the management and supervisory boards, as well as the names of the members of their committees and the approach adopted by them.

Declaration of Conformity

Pursuant to Section 161 of the German Stock Corporation Act (Aktiengesetz – AktG), the supervisory board and management board of exchange-listed stock corporations are obliged to issue an annual declaration stating that the recommendations of the "Code of the Government Commission on German Corporate Governance" have been and will continue to be complied with and, if applicable, specifying which recommendations have not been or will not be applied. Any departures from the recommendations must be explained.

The Management Board and Supervisory Board of ElringKlinger AG hereby issue a Declaration of Conformity pursuant to Section 161 AktG, stating that the Company has complied with, currently complies with and will in future comply with the recommendations of the "Government Commission German Corporate Governance Code" in the version dated May 26th, 2010, with the following exceptions.

Section 2.3.2: As in the past, in 2012 the invitation to the Annual General Meeting of Shareholders will again be dispatched by mail.At present, for organizational reasons the company does not comply with the Code's recommendation on the electronic dispatch of the invitation to the General Meeting of Shareholders. As the company generally has no records of the e-mail addresses of its shareholders, from the company's perspective any additional dispatch would be associated with disproportionate time and effort without actually offering any substantive benefits for shareholders. Within this context, it should also be noted that the invitation to the General Meeting of Shareholders has been and will continue to be available for download from the company's website.

Section 2.3.3: The Company does not provide shareholders’ acclamation by postal vote.The articles of association of a corporation can stipulate that shareholders may cast their vote by postal vote. The articles of association of the company do not provide such a possibility.

Section 3.8: The deductibles agreed as part of the company's D&O insurance are the same for the Supervisory Board and the Management Board; based on the current employment contracts, these deductibles differ from those outlined in Section 3.8 of the Code.As regards the D&O insurance policy for the Management Board, the company made use of statutory provisions whereby existing agreements with the Management Board concerning a deductible do not have to be adjusted in line with legal requirements during the applicable transitional period. Correspondingly, the company will not adjust the D&O insurance deductible for the Supervisory Board. The company is of the opinion that inconsistency in the treatment of the Management Board and the Supervisory Board would be inappropriate.

Section 4.1.5: When filling managerial positions in the enterprise, suitability and qualification of the candidates were taken into consideration by the management board primarily.When filling managerial positions the management board orients itself by requirements of the corresponding position and looks for the best possible individual, fulfilling these requirements. If there are more candidates with similar qualifications, the management board takes diversity into consideration and aims for an appropriate consideration of women without making these criteria a principal of priority. From the point of view of the company such regulation would be counterproductive, especially in view of the comparatively small number of managerial positions to be filled.

Section 4.2.5: The compensation report, within the context of the management report, outlines the basic system of compensation. Rather than being presented in the compensation report, details of Management Board remuneration are disclosed in the notes to the financial statements.The company presents data relating to Management Board compensation in an itemized format, i.e. separately for each member. Contrary to the recommendation, the components of compensation are disclosed in the notes to the financial statements. From the company's perspective, there is no need for additional disclosure, and thus presentation of duplicate information, in the compensation report.

Section 5.1.2: When appointing the Management Board, the Supervisory Board orients itself by suitability and qualification. No age limit has been set for members of the Management Board.The members shall be selected prior to their suitability and qualification. In the company’s view, the special weighting of further criteria given by the Code would limit the selection of potential candidates for the Management Board. Thereby, it has to be considered that the Management Board temporarily exists of only 3 members.

There is no general age limit for Management Board members. The main focus for ElringKlinger is on the qualifications as well as the experience required by candidates to be appointed to the board. Given the provisions set out in the German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz – AGG), which does not apply directly to this case but at the very least provides a basis for analogous application, the company is of the opinion that the approach of specifying an age limit is inappropriate.

Section 5.3.3: At present there is no Nomination Committee to propose possible candidates for the election of shareholder representatives to the Supervisory Board.Given the current size of the company's Supervisory Board, both the Management Board and the Supervisory Board are of the opinion that there is no need to form a Nomination Committee.

Section 5.4.1: Regarding the composition of the Supervisory Board, concrete objectives will not be predefined and according to this not published in the Corporate Governance Report. No age limit has been set for members of the Supervisory Board.Relevant selection criteria for the appointment of the Supervisory Board are also suitability, experience and qualification. A commitment to specifications concerning prospective appointments constricts flexibility without ulterior advantage for the company. This applies all the more as the representatives of the shareholders can temporarily only elect six members of the Supervisory Board with codetermination. Within this context, the specifications mentioned in the Code’s recommendation are per se further important criteria for the constitution of the Supervisory Board. So because of the mentioned reasons there is no need of a predefinition of concrete objectives.

No general age limit has been set for members of the Supervisory Board, as the expertise of the individual members is considered an overriding priority. Within this context, experience in particular is seen as an integral element. Given the provisions set out in the German General Equal Treatment Act, which does not apply directly to this case but at the very least provides a basis for analogous application, the company is of the opinion that the approach of specifying an age limit is inappropriate.

Section 5.4.3: Proposals regarding candidates for the Chair of the Supervisory Board are not disclosed to shareholders.The election of the Chairperson of the Supervisory Board is the sole responsibility of the Supervisory Board, as it is best placed to assess the suitability of the candidates. Against this background, the company is of the opinion that prior disclosure of the names of candidates for the Chair of the Supervisory Board would not be appropriate.

Section 5.4.6: The compensation report, within the context of the management report, outlines the basic system of compensation. Rather than being presented in the compensation report, details of Supervisory Board remuneration are disclosed in the notes to the financial statements.The company presents data relating to Supervisory Board compensation in an itemized format, i.e. separately for each member. Contrary to the recommendation, the components of compensation are disclosed in the notes to the financial statements. From the company's perspective, there is no need for additional disclosure, and thus presentation of duplicate information, in a compensation report.

Section 6.6: No reports of the kind specified in Section 6.6 of the Code are made beyond the statutory disclosure requirements.The company is of the opinion that transparent corporate communication is essential, particularly in order to maintain shareholder confidence. All relevant information is disclosed by the company in accordance with statutory requirements, which have been extended significantly in recent years. This information can also be accessed from the company's website. From the company's perspective, the other details recommended for disclosure under Section 6.6 of the Code are of no additional value to investors. The company believes that transparency is not dependent on the volume of information disclosed but rather on the quality and relevance of such information. Against this background, the company has chosen not to apply the Code's recommendations beyond those specified as required by law.

Section 7.1.3: Details relating to stock option programs and securities-based incentive systems as elements of Management Board compensation are presented in the notes to the financial statements rather than in the corporate governance report.Management Board compensation has to be disclosed in the notes to the financial statements. Explanations concerning the compensation system are given in the compensation report as a section within the management report, insofar as the compensation system contains elements relating to the recommendation outlined in Section 7.1.3. In the company's opinion, it would be inappropriate to present duplicate information in the corporate governance report.

Relevant details regarding corporate governance practices

Business at ElringKlinger is based on and guided by statutory requirements and the regulations arising from the German Corporate Governance Code, as stated in the declaration of conformity issued by ElringKlinger. As part of their responsibilities, the Management Board and Supervisory Board are obliged to ensure compliance with these requirements. ElringKlinger has also adopted more specific internal standards and guidelines, which are outlined below.

Vision and missionElringKlinger has developed a vision and a mission statement for the company which defines the Group's goals and fundamental values. The company's actions – the way it treats its clients, staff and suppliers – must be geared fully towards these goals and values, which also serve as a benchmark. The mission statement revolves around the concepts of loyalty and responsibility, reliability, courage, appreciation and cost and quality leadership. The vision and mission statement can be viewed online at www.elringklinger.de.

Corporate code of ethicsElringKlinger also abides by a corporate code of ethics derived from its vision and mission statement. This code can also be found online at www.elringklinger.de. The Management Board is responsible for implementing this code, whose principles form an integral part of the company’s internal regulations and guidelines. ElringKlinger’s corporate code of ethics includes explicit pledges to uphold human rights and specific social standards, prohibit discrimination and corruption, and act on its responsibility for the environment.

Management principlesElringKlinger's management principles shall play a major role in shaping working relationships. Clarity and openness, respect, effectiveness, innovation and training are key elements of these principles. The leadership principles are available online at www.elringklinger.de.

Quality and environmental guidelinesThe quality and environmental guidelines for suppliers of the ElringKlinger Group ensure that the company’s products always meet the highest standards of quality and that resources are treated carefully and sparingly. The guidelines are published online at www.elringklinger.de. In addition to the above-mentioned principles and guidelines, there are further regulations, instructions and rules precisely stipulating how each division should implement both the legal requirements and other, self-imposed standards. This particularly applies to complying with environmental standards, avoiding hazards and preventing corruption.

Procedural methods of the Management Board and Supervisory Board

Management BoardThe Management Board directs the company and conducts its business. The Management Board consists of three members with a chairperson. The Management Board's tasks are divided into areas of responsibility according to functional criteria. Area of Responsibility 1, directed by the Chairman of the Management Board Dr. Stefan Wolf, covers the area of Aftermarket as well as the areas Affiliated Companies, Legal, Finance/Controlling, Human Resources, IT, Corporate Communication and Investor Relations. Mr. Theo Becker manages Area of Responsibility 2, which covers Shielding Systems, Elastomer Technology/Modules, Cylinder-head Gaskets, Specialty Gaskets, Technical Service, Battery Technology and E-Mobility, as well as Materials Management and Quality and Environmental Management. Mr. Karl Schmauder is accountable for New Business Areas and Sales, which are part of Area of Responsibility 3.

Under the by-laws defined by the Management Board, each member of the Management Board directs his area of responsibility independently. Irrespective of this, the Management Board bears overall responsibility for the management of the company. Fundamental decisions are made jointly or are presented to the Management Board as a whole for the purpose of its decision-making. Management Board meetings are to be held at least twice a month. Decisions are to be made by mutual agreement in as far as possible. If this is not possible, the decision is that of the majority of the Management Board members. In the case of a majority decision, the chairperson of the Supervisory Board is to be informed of this situation as well as the underlying circumstances. The chair is responsible for conducting the Management Board meetings and reporting to the Supervisory Board. The by-laws set out in detail the Management Board’s reporting requirement to the Supervisory Board in particular regarding the risk situation, risk management and compliance. Under the provisions of the by-laws, the prior agreement of the Supervisory Board is required for important business such as acquisitions, significant property transactions or disinvestments. Beyond this, the Supervisory Board is free to decide that further deals are dependent on its agreement, taking into account the allocation of rights and duties according to stock corporation law. In addition, the by-laws dictate the approach to be taken in the event of conflicts of interest, absence of members of the Management Board and the taking on of further offices, which always requires the agreement of the chair of the Supervisory Board.

Supervisory BoardThe Supervisory Board monitors the management of the company by means of the Management Board and provides advice. It must be involved in decisions that are fundamental for the company. The Supervisory Board is composed of six shareholder representatives and six employee representatives in accordance with the German Codetermination Act (Mitbestimmungsgesetz). The Supervisory Board meets at least once a quarter so that the Management Board can report on business development and significant transactions. To aid preparation, the Management Board shall provide the members of the Supervisory Board with full written information on each of the agenda items at least one week before the arranged meeting. The Supervisory Board shall be convened whenever the Management Board or a member of the Supervisory Board has good cause to request this. Furthermore, the Supervisory Board chairperson remains in regular contact with the Management Board. At the close of the financial year, the Supervisory Board undertakes an efficiency audit regarding its activities by means of a questionnaire. The results are evaluated and discussed.

The Supervisory Board’s terms of reference define the election of the chairperson and the deputy chairperson as well as the convening and quorum of the Supervisory Board. Supervisory Board decisions are decided by simple majority. In urgent cases, they may be made by telephone, in writing or by e-mail, provided that no member of the Supervisory Board objects to the procedure. The Management Board members participate in the Supervisory Board meetings if the Supervisory Board does not make other arrangements on an individual basis. Minutes are to be kept of the Supervisory Board’s meetings.

Committees of the Supervisory BoardThe Supervisory Board has formed an Audit Committee, a Personnel Committee and – pursuant to the provisions set out in the German Codetermination Act – a Mediation Committee from its midst.

The Audit Committee is made up of Mr. Diez, Mr. van Husen, Dr. Lerchner and Mr. Lechler. The committee is chaired by Mr. van Husen. The Supervisory Board determines the composition of the Audit Committee in accordance with the terms of reference of the Audit Committee. Within this context, the chairperson of the Audit Committee shall have specialist knowledge and experience in the application of accounting principles and internal control processes. The chairperson should not have been a member of the Management Board of ElringKlinger AG during any of the previous five years. The Audit Committee convenes at least twice per annum, or more frequently if required. Regulations with regard to convening the Audit Committee and passing resolutions therein are largely comparable to those defined within the terms of reference of the Supervisory Board. For a quorum to be formed all committee members must participate in the act of passing a resolution. The duties of the Audit Committee are defined more closely by the terms of reference. Under these terms, the Audit Committee monitors the financial accounting and reporting and prepares resolutions related thereto for subsequent discussion by the Supervisory Board. It analyzes the controlling and risk management system as well as the efficiency of internal auditing. It also monitors compliance with the German Corporate Governance Code and the work of the auditor, particularly as regards the auditor's independence. For this purpose, the auditor is required to report to the Audit Committee on the audit itself, the procedures of the audit and its focal points, in addition to any findings it makes. The Audit Committee is responsible for preparing the audit of the annual financial statements, management report and audit report relating to the separate and consolidated financial statements to be performed by the Supervisory Board and submits recommendations. Finally, it proposes to the Supervisory Board the independent auditor as a basis for the Supervisory Board's decision-making process and prepares the audit mandate.

The Personnel Committee comprises five members. At present, these members are Mr. Bauer, Dr. Lerchner – Chairman –, Mr. Lechler, Mr. van Husen and Dr. Klinger-Lohr. The structure, procedures and duties are defined within the terms of reference. The Supervisory Board is responsible for determining the appointment and chairmanship of the Personnel Committee. The procedures to be applied with regard to convening the Personnel Committee, passing resolutions and forming a quorum are equivalent to those defined for the Audit Committee. Personnel Committee meetings are convened as required. The Personnel Committee is responsible for preparing appointments to the Management Board by selecting and recommending suitable candidates as Management Board members, drawing up suggestions with regard to the structure of the employment contract and compensation, concluding contracts of employment – responsibility of the Chairman of the Personnel Committee – subsequent to approval by the Supervisory Board, conducting meetings with directors, preparing extensions to contracts and reviewing Management Board compensation on a regular basis, which also includes submitting recommendations to the Supervisory Board with regard to the adjustment of compensation levels.

The Mediation Committee, the formation and composition of which conforms with applicable regulations under the German Codetermination Act, comprises four members. They include the ex-officio members Dr. Lerchner and Mr. Siegers as Chairman and Deputy Chairman of the Supervisory Board, as well as Ms. Monteiro-Munz and Mr. Lechler. The sole duty of the Mediation Committee is to submit to the full Supervisory Board recommendations for the appointment of Management Board members if the full Supervisory Board is unable to agree on a candidate with the requisite majority.